In 2018 Turkey experienced a severe currency crisis: in January-September the lira depreciated by about 40% against the US dollar, pushing up inflation and weighing on economic growth.

Pensioners and the formally employed are partly protected from the negative effect of the currency crisis by regular inflation-linked increases in their incomes. In addition, the government is contemplating a substantial rise in the minimum wage ahead of the local elections in March.

However, not all jobs are safe, and soaring inflation will dent real income. The currency crisis will have a detrimental effect on the livelihoods of casual workers and the self-employed, as well as employees in hard-hit economic sectors such as construction. In addition, unemployment will probably rise, mostly affecting the youth and under-qualified.

Income distribution is poor and poverty is widespread, but street demonstrations are so far unlikely. In any case, the government will try its best to keep the focus of attention away from the economy in the run-up to the local elections.

Turkey's salary-earners and pensioners are looking forward to some relief from the 2018 currency crisis when their pent-up monthly pay packages arrive in January. However, for many the worst of the currency crisis may still lie ahead. A sharp decline in the value of the lira against the US dollar caused annual inflation to peak at 25.2% in October (it receded to 20.3% in December). Three million civil servants and more than 12m pensioners can expect pay increases of about 12% in January, linked to the December annual inflation rate (the incomes of these groups increase twice a year, roughly in line with the rise in prices over the preceding six months).

Meanwhile, management and technical staff in the private sector can expect increases of about 17% when their annual pay reviews come round in 2019, according to surveys quoted in the local media. Among other regular employees in private and public workplaces, much will depend on the annual rise in the minimum wage, which is being debated by a panel consisting of trade union, employer and government representatives.

Minimum wage set to increase

More than 40% of the formally employed earn the minimum wage, according to official estimates. This figure appears slightly inflated, but the level of the minimum wage also affects the incomes of many other workers indirectly. Trade unions are only able to bargain effectively in a limited number of sectors and companies. As a result, the government will have the last word and may well feel obliged to lift the net minimum wage to at least TL1,900 (US$355) per month, from TL1,603 at present, in the coming months—even if this means foregoing some social security premiums to soften the cost to employers.

The minimum wage tends to rise most rapidly at election times. In 2016 the ruling right-wing Justice and Development Party (AKP) raised the net minimum wage by 30%, at a time when inflation stood at only 7%, thereby fulfilling a promise that it had made ahead of the general election in the previous year. For 2019 the main opposition Republican People's Party (CHP) has already set the tone by announcing that the minimum wage in all municipalities that it will control after the nationwide local elections of March will be set at TL2,200.

Rising unemployment, low confidence and cautious banks

On an annual average basis, we expect the consumer price index (CPI) to average 16-17% in 2019—little changed from 2018, when it soared to 16.4% owing to the currency crisis. Provided they do not set off a fresh spiral of inflationary pressures, the pay and pension rises in January will thus at least partly compensate millions of households for rising prices. With banks in cautious mode (which constrains lending), interest rates at record highs and economic confidence low, consumers are seeking to avoid using their credit cards or taking out consumer loans; this will weigh on private consumption in the coming months, thereby depressing economic growth. On the positive side, already indebted households will benefit from having contracted liabilities, including mortgage loans, mostly in Turkish lira at lower fixed interest rates than those prevailing today.

Others will not be so lucky as the economy slows down over the next few months and unemployment rises owing to the financial difficulties of employers as well as the fall in demand for goods and services. In September employment in the construction sector was 10% lower than a year earlier, at barely 2m. Meanwhile, the number of unemployed persons was up by 9%, at 3.7m, and the unadjusted rate of unemployment reached 11.4% (from 9.9% at end-2017, notwithstanding the low level of workforce participation among women). If the 2.1m people "available for work but not actively seeking" were included in the workforce, the number of unemployed would have worked out at 5.8m and the rate of unemployment at 16.7%.

Tough on youth

The outlook may also be bleak for those who work only casually in precarious sectors like construction, agriculture, catering or domestic cleaning, and for those engaged in small-scale self-employment such as farming, taxi-driving or shop-keeping. Among all employed persons, over a fifth are classed as either employers or self-employed, and over a tenth are unpaid family workers, according to official statistics. In response to the crisis, there have been calls for Turkey's limited redundancy benefit scheme for the formally employed to be extended to cover individual traders and artisans; however, the government has not as yet followed suit.

More crucially, 2019 will be another tough year for young people, who continue to swell the working-age population by almost 1m a year. Youth unemployment (aged 15-24) was 21.6% in September (24.9% excluding agriculture), compared with 20% in September 2017. About 17% of men and 51% of women aged between 20 and 29 were not in employment, education or training. Given the fast pace of population growth, at 1.5% per year, this represents a long-term ticking bomb if they are unable to find work opportunities.

No yellow vests in sight

Recep Tayyip Erdogan, the president, has decried suggestions that Turkey is ripe for events like the "Yellow Vest" protests in France. In recent weeks there have been renewed detentions and accusations related to the Gezi incidents—widespread street protests against Mr Erdogan's heavy-handed style of government in June 2013. Given the problems of the economy, the president and his entourage will seek to keep public attention firmly fixed on security matters and perceived threats to national security, including the volatile situation in neighbouring Syria, as the March local polls approach.

Besides the government's discourse, political polarisation and the fact that many demographic groups are at least partially protected from the impact of the currency crisis—particularly in major cities—make mass public expressions of economic discontent highly unlikely. However, the volatile economic situation could still take a turn for the worse, and income inequality is edging upwards. On December 14th Mr Erdogan declared that "where there are Muslims, there cannot be, should not be oppression, genocide or skewed income distribution". Yet in 2017 Turkey's Gini coefficient worked out at 0.4—the highest and most inegalitarian for a decade—with 31.4% of disposable income going to only 10% of households.